Other Tax Incentives

Work Opportunity Tax Credit (WOTC)

WOTC is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant barriers to employment. WOTC helps targeted workers move away from economic dependency, while participating employers are able to reduce their income tax liability.

Target population of WOTC:

Temporary Assistance for Needy Families (TANF) recipients

Veterans

Ex-felons

Supplemental Security Income (SSI) recipients

High-risk youth

Vocational rehabilitation referrals

Youth Employment program participants

Food stamp recipients

Benefits

The tax credit employers can claim depends on the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours that individual worked. There is also a maximum tax credit that can be earned. Employers generally can earn a tax credit equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs.

New Markets Tax Credit (NMTC)

New Markets Tax Credit (NMTC) provides tax credits for new private sector investment in economically distressed communities through certified Community Development Entities (CDEs). An organization wishing to receive awards under the NMTC Program must be certified as a CDE by the Community Development Financial Institutions Fund of Department of Treasury.

To qualify as a CDE, an organization must:

be a domestic corporation or partnership at the time of the certification application;

demonstrate a primary a mission of serving, or providing investment capital for, lowincome communities or low-income persons; and

maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.

Four types of activities by CDEs are possible when utilizing the NMTCs:

Making investment in or loans to qualifying businesses

Providing financial consulting to businesses and residents of low income communities

Making investments in or loans to other CDEs which then makes investments in, loans to, or provide financial consulting to qualifying businesses

Purchasing loans from CDEs

Low Income Housing Tax Credit (LIHTC)

LIHTC was created by the United States Congress as a part of the Tax Reform Act of 1986 to promote the development of affordable rental housing for low-income individuals and families.

Federal housing tax credits are awarded to developers of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for their projects, which reduces the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property can in turn offer lower, more affordable rents.

Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their Federal tax liability each year over a period of 10 years.

To be eligible for consideration under the LIHTC program, a proposed project must:

Be a residential rental property

Commit to one of two possible low-income occupancy threshold requirements

Restrict rents, including utility charges, in low-income units

Operate under the rent and income restrictions for 30 years or longer, pursuant to written agreements with the agency issuing the tax credits.

Renewable Energy Tax Credit

Renewable Energy Tax Credit has two major components:Investment Tax Credit (ITC), and Production Tax Credit (PTC).

Investment Tax Credit

Investment Tax Credit is offered to commercial renewable energy projects based on total dollars spent on qualified and eligible property. The credit varies depending on the type of renewable energy project; solar, fuel cells and small wind are eligible for credit of 30% of the cost of development, with no maximum credit limit. Geothermal, microturbines, and combined heat and power panels are eligible for 10%.

Costs that are eligible for the credit:

Investment tax credit is earned fully when a project in placed in service.

Production Tax Credit

Production Tax Credit is provided to renewable energy projects based on total amount of electricity produced. Qualifying energy sources include:

Wind

Closed-loop biomass

Open-loop biomass

Geothermal

Small irrigation hydro

Municipal solid waste

Qualified hydropower

Different qualified energy resources have different rate at which credit is awarded. Production tax credit is earned over 10 years, beginning when the project is placed in service.

Three-Part Economic Zones (EZ)

Governor Brown signed SB 90 and AB 93 on July 11, 2013. These bills phase out California’s 28 year-old Enterprise Zone. The program, which provides tax credits to businesses in targeted areas if they purchase qualified equipment or hire qualified employees, will be replaced with Governor Brown’s new three-part economic development plan.

Enterprise Zones will be re-zoned as “Former Enterprise Zones,” which include Enterprise Zones that were designated through 2012 and expansion areas effective through June of 2013. These Former Enterprise Zones will be re-zoned to exclude any areas in the lowest quartile of census data for unemployment and poverty. Businesses in Former Enterprise Zones will be eligible for certain benefits under Governor Brown’s new three-part economic development plan.

Part 1 — Partial Sales Tax Credit Exemption for Qualified Equipment

Taxpayers may claim a partial sales tax exemption for the state portion of sales tax imposed on equipment purchases from July 1, 2014 through July 1, 2022 if used in the below-listed activities. An exemption certificate must be presented at the time of purchase.

Qualified Activities:

Manufacturing

Processing

Recycling

R&D as defined under section 174 of the Internal Revenue Code

Maintenance of the above equipment

Pollution control equipment

Excluded industries and equipment:

Banking businesses

Extractive businesses

Agricultural businesses

Non-capitalized equipment

Part 2 — Hiring Tax Credit

A new hiring tax credit for Designated Census Tracts and Economic Development Areas will replace the Enterprise Zone hiring tax credit. Full-time employees meeting one of the criteria listed below will be eligible. The credit will be available for tax years 2014 through 2020 inclusive and must be claimed on a timely-filed original return.

An employer must make a tentative credit reservation in a manner to be prescribed by FTB for each qualified employee within thirty days of registering with EDD. Taxpayers must also provide annual data regarding these employees to FTB by the corporate tax filing deadline for their respective tax years.

There is a recapture provision, with exceptions, for employees terminated in the first 36 months of employment. The hiring credit has a five year carry forward provision, and is generated for five years from the date an employee is hired. Employees must still work at least half of a given taxable year within qualified areas and their starting wage must now be at least 150% of minimum wage. A qualified employee must be hired 2014 onward and work in a Former Enterprise Zone, or a qualified employee must be hired after the employee’s job-site becomes a Designated Census tract.

Qualified employees

Unemployed six months preceding date of hire (higher education students must have graduated 12 months prior)

Veteran unemployed since separation from service

Earned Income Tax Credit recipient in prior year

Ex-offender as previously defined under the Enterprise Zone act

CalWORKS or general assistance recipient

Industries not eligible unless meeting the small business $2M exclusion:

Temporary staffing agencies

Retail establishments

Food service establishments

Casinos (including casino hotels)

Bars, lounges or other drinking establishments

Live nude entertainment (no small business exclusion)

California Competes Tax Credit Committee

Governor Brown’s Office of Business and Economic Development will receive a $600,000 budget allocation to negotiate tax credit contracts with businesses based on a series of factors listed below. The contracts will be approved or rejected by the California Competes Tax Credit Committee. These credits will be available for tax years beginning 2014 through 2024 inclusive and will be subject to recapture if the business fails to achieve the objectives outlined in the agreement. The program is repealed in 2025.